Unregulated Bridging Loan
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Unregulated Bridging Loan
Paul Holland explains how an unregulated bridging loan works.
What is an unregulated bridging loan? Are unregulated bridging loans safe?
An unregulated bridging loan is a short-term loan used to bridge a gap in funding, usually for property. It’s unregulated because it’s not overseen by the Financial Conduct Authority (FCA). If it isn’t your main home, a loan may be unregulated.
Unregulated bridging loans are safe, but they are designed for experienced borrowers. It’s imperative that you get the correct advice if you are looking at these sorts of options.
What’s the difference between a regulated and unregulated bridging loan or bridging finance? How do I know which one I need?
If the loan is secured on a property where you or your family will live, it’s normally regulated. If it’s for an investment property, a second home or a commercial building, it’s generally unregulated.
The property use is what determines the type of loan you require, not your job or your income.
What can I use an unregulated bridging loan for?
It’s commonly used for a property purchase, most commonly via auctions or for refurbishments and chain breaks.
Let’s say you’ve sold your property, you’re planning to buy another one, but your buyer pulls out. You’re worried that you’re going to lose your dream property. You might use a bridging loan to bridge that gap, to secure that new property and then sell the existing one later.
It’s flexible and speedy, helping you take advantage of a time-sensitive opportunity. That’s generally what a bridge is for.
What documents will I need to provide when applying for an unregulated bridging loan? Is proof of income required?
With any borrowing applications, you’ll need ID, proof of address and the property details. With a bridge, you always need a clear exit strategy that you can evidence from the start. This is what lenders are really concerned about – how are you going to repay this? Is it going to be through a sale or a remortgage?
Proof of income isn’t always required, because the loan is mainly assessed on that exit strategy. It’s always good to have income proof to hand, but with bridging loans it’s not always necessary.
Can I get an unregulated bridging loan if I’m self-employed?
Self-employment isn’t an issue. Again, the income isn’t always a factor, so being self-employed is less of a concern. Lenders focus more on the value of the property and the exit plan than your employment status.
Can I get an unregulated bridge or bridging loan with bad credit?
Impaired credit is less of an issue with bridging finance. Lenders are more concerned with the exit than your credit score, although serious issues might potentially trip you up. If we’re talking about a recent repossession, that might limit your options a little bit.
Do I have to pay the bridging interest each month?
Not always. You can find products with ‘rolled up’ interest that’s added to the loan each month, and you settle that bill on the exit. That’s going to help you if you’re in a project that needs good cash flow.
There are other options where you would pay monthly, but more often you would roll that up and pay it at the end.
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Can I pay back the money early? What happens if an unregulated loan is repaid early?
Yes, you can pay it early. Unregulated bridging loans often don’t even charge early repayment penalties after a minimum period of typically one or three months.
Paying it back as soon as you can is the main aim, because every month will cost you more in interest. The sooner you repay, the better.
How long does an unregulated bridging loan take to arrange? How long will my unregulated bridging application take to complete?
This is fast finance and it’s not uncommon for these things to be arranged in as little as a week. You’re going to need a valuation, though, which will depend on the surveyor’s and vendor’s diaries.
Some elements of legal work also need to be completed within that time. Generally, lenders have in-house solicitors and it’s much faster than a traditional mortgage process. We have seen them wrapped up inside a week if people are quick to respond with what we need and all their evidence.
What’s the benefit of an unregulated bridging loan?
The two main reasons you would choose this finance are speed and flexibility. It allows you to move quickly on property opportunities where a traditional mortgage would be too slow or restrictive. Because of that, though, it’s much more expensive than conventional borrowing.
You’ve explained how a broker can help. Have you got anything else to add?
Bridging can be really powerful in certain situations, but only when it’s used correctly. In the first question we touched on this being designed for experienced borrowers, but even experienced borrowers should get expert advice.
These loans are not cheap. One wrong move could cost you tens of thousands of pounds. It’s well worth speaking to someone worth their salt when it comes to bridging – be warned if you don’t.
Key Takeaways:
- An unregulated bridging loan is a short-term finance option not overseen by the Financial Conduct Authority (FCA), typically used for investment properties, second homes, or commercial buildings – not your main residence.
- They are frequently used to move quickly on time-sensitive opportunities such as property auctions, refurbishments, and breaking a property chain.
- Lenders mainly assess the loan application based on a clear, evidenced exit strategy (how you plan to repay, e.g., sale or remortgage), making proof of income or employment status less critical.
- Interest can often be ‘rolled up’ and paid when the loan ends. Early repayment is common and beneficial, often without penalties after a short initial period.
- While offering speed and flexibility, unregulated bridging loans are much more expensive than traditional borrowing. They are designed for experienced borrowers, and securing expert advice is imperative due to the risk of significant financial loss if not used correctly.
SOME BRIDGING FINANCE IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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